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# Firms and Production Long-run

question
What is the definition of Long-run?
A long enough period of time that all inputs can be varied
question
What is the definition of Resource substitution?
Firm can produce in various ways using difference resource combinations
question
What is the definition of Isoquants?
All possible combinations of resources that will produce given level of output
question
What are the properties of isoquants?
- Away from origin means higher level of output

- Isoquants do not cross

- Isoquants slope downwards

- Slope of the isoquant is known as marginal rate of technical substitution
question
What does the Marginal Rate of Technical Substitution (MRTS) tell?
How many units of capital a firm can replace with an extra unit of labor holding output constant
question
Since isoquants slope downwards, what happens to MRTS?
MRTS is negative
question
What do the types of isoquants and MRTS explain?
- Substitutability of resources or inputs

- Inputs are perfect substitutes --> linear isoquants

- Inputs are imperfect substitutes

- Inputs are perfect complements
question
What are the characteristics when inputs are perfect substitutes?
- Straight line indifference curve

- MRTS is constant
question
What are the characteristics when inputs are imperfect substitutes?
- Convex isoquants

MRTS is decreasing or diminishing MRTS
question
What are the characteristics when inputs are perfect complements?
- Inputs cannot be substituted and need to be used in perfect ratio

- Right-angled or 'L'-shaped isoquants

- MRTS is zero
question
What is the definition of Returns of scale?
Change in output as a result of proportional increase in all it inputs, given a production technology
question
What are the three types of returns to scale?
- Constant returns to scale

- Increasing returns to scale

- Decreasing returns to scale
question
What is the definition of Constant returns to scale?
Given a production technology, a proportional increase in all it inputs leads to exact same proportional increase in output
question
What is the definition of Increasing returns to scale?
Given a production technology, a proportional increase in all it inputs leads to higher proportional increase in output
question
What is the definition of Decreasing returns to scale?
Given a production technology, a proportional increase in all it inputs leads to lower proportional increase in output
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question
What is the definition of Long-run?
A long enough period of time that all inputs can be varied
question
What is the definition of Resource substitution?
Firm can produce in various ways using difference resource combinations
question
What is the definition of Isoquants?
All possible combinations of resources that will produce given level of output
question
What are the properties of isoquants?
- Away from origin means higher level of output

- Isoquants do not cross

- Isoquants slope downwards

- Slope of the isoquant is known as marginal rate of technical substitution
question
What does the Marginal Rate of Technical Substitution (MRTS) tell?
How many units of capital a firm can replace with an extra unit of labor holding output constant
question
Since isoquants slope downwards, what happens to MRTS?
MRTS is negative
question
What do the types of isoquants and MRTS explain?
- Substitutability of resources or inputs

- Inputs are perfect substitutes --> linear isoquants

- Inputs are imperfect substitutes

- Inputs are perfect complements
question
What are the characteristics when inputs are perfect substitutes?
- Straight line indifference curve

- MRTS is constant
question
What are the characteristics when inputs are imperfect substitutes?
- Convex isoquants

MRTS is decreasing or diminishing MRTS
question
What are the characteristics when inputs are perfect complements?
- Inputs cannot be substituted and need to be used in perfect ratio

- Right-angled or 'L'-shaped isoquants

- MRTS is zero
question
What is the definition of Returns of scale?
Change in output as a result of proportional increase in all it inputs, given a production technology
question
What are the three types of returns to scale?
- Constant returns to scale

- Increasing returns to scale

- Decreasing returns to scale
question
What is the definition of Constant returns to scale?
Given a production technology, a proportional increase in all it inputs leads to exact same proportional increase in output
question
What is the definition of Increasing returns to scale?
Given a production technology, a proportional increase in all it inputs leads to higher proportional increase in output
question
What is the definition of Decreasing returns to scale?
Given a production technology, a proportional increase in all it inputs leads to lower proportional increase in output

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